Updated with correction
The U.S. Supreme Court is scheduled to hear arguments next month in an ERISA case that could greatly expand guidelines for defined contribution plan executives' fiduciary responsibilities.
In the case of Tibble et al vs. Edison International et al, the court is being asked to decide how to apply an ERISA statute that limits fiduciary breach lawsuits to a six-year period. When that period starts and ends, and whether DC plans have a continuing fiduciary duty to take action against so-called imprudent investments, are the crucial issues.
“We need to clarify how the six-year statute runs,” said Stephen D. Rosenberg, of counsel at the Wagner Law Group, Boston. “The linchpin issue is whether a sponsor has a continuing duty. Do you have a continuing duty after six years?”
If the Supreme Court supports arguments by Edison 401(k) plan participants that fiduciaries can be held responsible beyond the six-year time limit, the ruling could encourage more fiduciary breach lawsuits, he said. Mr. Rosenberg, who has represented plans in ERISA lawsuits, isn't involved in the Tibble case.
The plan participants say a 2013 federal appellate court ruling on the scope of the time limit harms participants and weakens ERISA's protection against imprudent investments.
That ruling upheld a U.S. District Court's rejection of participants' complaint that Edison plan executives breached their fiduciary duty by choosing retail-price rather than institutional-price versions of three mutual funds. The District Court dismissed the claim because plaintiffs sued more than six years after the funds were added to the Edison plan.
The appeals court ruling” “immunizes fiduciaries from ERISA liability — and deprives plan participants of any relief — for their failure to manage plan assets prudently once the initial investment selection is more than six years old,” said the plaintiffs' petition filed by lead attorney Jerome J. Schlichter, founding and managing partner of Schlichter, Bogard & Denton LLP, St. Louis.
The Department of Labor filed a friend-of-the-court brief, supporting the participants in the 401(k) plan offered by Southern California Edison, which is owned by Edison International. In asking the Supreme Court to overturn the appellate ruling, the DOL said that decision “would seriously jeopardize the investments” of participants and beneficiaries.
“The trustee has an ongoing duty to systematically review (investments) and to remove imprudent investments from the trust,” said the brief filed by Solicitor General Donald B. Verrilli Jr. on behalf of the Labor Department. The plan's “ongoing duty of prudence” includes “a duty to revisit the plan investments and remove the imprudent ones.”